I wrote the following analysis on Amazon.com’s GAAP accounting manipulation for Seeking Alpha…
Amazon.com (AMZN) released its earnings on Thursday, February 1st after the market closed. The headline net income number was $3.85/share. This blew away Wall Street’s estimate of $1.85/share, which is a bit peculiar since the traditional “beat the Street” earnings game is accomplished by guiding Wall Street analysts to an earnings consensus that is slightly below the posted result.
The revenue growth rate was truly impressive. For Q4 2018 vs. 2017, revenues jumped 38.2%. For the full year, revenues grew 30.8%. However, without question AMZN’s free 2-day shipping associated with its Prime membership is the driving force behind sales growth. But at what cost? The table below shows AMZN’s revenue growth rate plus cost and operating margins from 2005 – 2007. The data is from AMZN’s 10-k filings.
Cost of fulfillment is the cost of de-stocking an item and getting it to the customer’s doorstep. The fourth line item above shows fulfillment costs over time. As you can see, the cost of fulfillment as a percentage of revenues has doubled since 2006. For every dollar of revenue, AMZN spends nearly 23 cents getting inventory delivered to end-users.
You can read the rest of this article here: Amazon’s Deceptive Accounting Games
I also publish the Short Seller’s Journal, which is a weekly newsletter that provides insight on the latest economic data and provides short-sell ideas, including strategies for using options. You can learn more about this newsletter here: Short Seller’s Journal information.
I’ve been subscribed for a number of months now and really appreciate your newsletter. It has been quite profitable. In fact I had bought the $15 August puts BZH, Bought at $0.70 – yesterday $1.82 – 160%. Other recommendations have also paid off well. Thanks again for your hard work. – subscriber feedback
“‘Faith’ is defined as “belief without evidence.” AMZN is a stock investment that thrives on
investor faith. Investor greed transforms into irrational faith when the faith is rewarded with stock gains. This will ultimately burn out but it’s impossible to predict timing. The stock is trading at 178x TTM net income. This is an insane multiple for a company with a deteriorating business model that is under attack from all angles by large, well-capitalized competitors who specialize in Amazon’s business segments.
Having said that, I continue to believe that money can be made trading AMZN from the short side but it requires discipline and diligent capital management. Amazon is one of those stocks in which you need to maintain some short exposure because, when it finally goes, it will go quickly and you’ll be waiting for a big bounce to short that will never materialize” – excerpt from the latest Short Seller’s Journal
In last week’s issue of the Short Seller’s Journal, I did an in-depth analysis of Netflix’s (NFLX) accounting and demonstrated how NFLX manipulates GAAP accounting to manufacture fake net income. I advised subscribers to short NFLX on Monday at $188. This week I focus on the key areas of Amazon’s quarterly financials and show how Jeff Bezos transforms actual negative free cash flow into the Bezos $9.6 billion LTM “free cash flow.”
I also demonstrate the ways in which Amazon’s business model is beginning to break down – that it’s e-commerce model is under attack from all angles by well-capitalized, more profitable retailers like Walmart and its cloud computing business is being attacked aggressively by traditional software development and applications companies like MSFT, IBM, GOOG and ORCL.
On a year over year LTM basis, the amount of cash burned by AMZN has increased 89.2%, from negative $2.476 billion to negative $4.685 billion. – this seek’s Short Seller’s Journal shows why this statement is fact. Recently subscribers have cleaned up on Chipotle (CMG), Sears (SHLD), Beazer (BZH) and others. This week’s issue shows why AMZN will eventually be a home run short. You can learn more here: Short Seller’s Journal info.
If this is the case, the true reality beneath Bezo’s fraudulent accounting had to have been horrific:
Amazon’s quarterly profit misses estimates, shares tumble
From Reuters – LINK:
Amazon.com Inc reported a lower-than-expected quarterly profit on Thursday as expenses rose and the company provided a disappointing fourth-quarter revenue forecast.
The growth of AMZN’s cloud business is rapidly slowing down. This has been one of my key arguments about the insanity of the market cap attributed to AMZN’s cloud business. It’s tiny compared to AMZN’s overall revenues. And competition in the cloud space is going to become ferocious as Microsoft, Google and Oracle begin to really flex their muscles.
The only question left for me is to determine which between AMZN and TSLA is biggest Ponzi scheme in history. AMZN is maybe a $10 stock and TSLA is likely worth $2.